Military Shouldn`t Profit From Low Inflation Rate

THE INFLATION FAIRY has visited the Pentagon, leaving a large and unaccounted for fortune and several questions in its wake.

Such as, billions, billions, who`s got the billions of dollars funneled into the Pentagon to protect the defense effort against inflation rates that never materialized?

Who are we to believe? Defense Secretary Caspar Weinberger when he says the money is returned, along with a request that it be applied to the next defense budget? Or Weinberger`s deputy secretary, William H. Taft IV, who says, ``We have already returned to the taxpayer billions of dollars we have not spent.``

To put it another way, are those savings being used to ease federal budget problems or have they become part of a costly shell game?

The questions came up when Rep. Les Aspin, D-Wis., chairman of the House Armed Services Committee, estimated that the Pentagon has received an ``unplanned`` and ``secret`` dividend of $18-$50 billion, thanks to overestimated inflation rates built into its appropriations over the last four years.

In a letter to Weinberger, Aspin did not charge that the money was being misspent, but did ask his cooperation in finding a better way to deal with or avoid such enormous surpluses. A less tactful approach should be used in finding out what`s happening to the surplus already accrued.

There are several rocks to look under. The Pentagon`s agility in shuffling money from one project to another, for one. The Pentagon`s Treasury balance, for another. Under the most interesting rock are those always-thrifty defense contractors.

Say a $5 billion contract is awarded for the building of F-15 airplanes. The agreement contains a 6 percent inflation hedge. If inflation is only 4 percent, the contractor can, according to a member of Aspin`s staff, pocket the extra 2 percent. Call that an un-COLA that is as inexcusable as it is lucrative.

In confirming the fact that billions are involved, Taft called the achievement remarkable and credited better Defense Department management and administration inflation-fighting success for the savings.

The latter is a legitimate laurel. The former is a bad joke, bounced off a public numbed by the Pentagon`s $600 toilet seats.

Pentagon appropriations are outlined at least two years before federal budgets are finalized. Inflation figures become obsolete. Congress must come up with a formula flexible enough to reflect real inflation or, at the very least, to keep track of the windfalls created by budget mistakes.